Could The Fed Lower Interest Rates And Print Away?

Interestingly, economists continue to reference the Great Financial Crisis of 2008 as if it were a depression. It is also important to note that most of the issues causing the crisis have never really been addressed. By printing our way out of that mess, shifting and creating debt we have merely kicked the can down the road. It seems the endgame theory has been redefined and the game never ends, it just changes. 

It often seems the bubble is "always popping" but after two weeks it is back to business as usual. This is evident in the fact ideas of debt reduction now include talk of a debt jubilee and it is becoming more normal for people to advocate guaranteed basic income as the answer to society's woes. Universal basic income or UBI is a direct cash benefit from the government that provides people with money to support their basic needs regardless of their employment status.

 

While unlikely, we must consider that at any time the Fed could lower interest rates and take us down the same path as Japan. Yes, the Fed could lower interest rates and print away as an answer to our problems. The problem with this is it results in a slew of new problems. While this seems unlikely as long as Powell remains in power, if he would be removed from the equation, things could rapidly change. 

 

Beware Things Can Get Twisted!

The system that we live under is essentially closed and such systems are generally more rigged versus open systems. Closed systems are in a way a trap that is very difficult to get out of. An example of this is that gold ETFs act more as a derivative for gold, and fiat currencies across the world act as a derivative for the dollar. These derivatives are not as valuable as the real thing when you get right down to their bottom-line. Derivatives are more of a promise or a link to the real thing.  

The idea of higher for longer has not crashed the economy. We can only hope it will result in a re-balancing over time. This does not mean the bears are wrong or the bulls are right, it sort of means we will putter along. An article came out after the last Fed meeting touting how Powell was essentially saying the Fed is done raising rates.  

 

Is the story of the 2022 and 2023 rate hikes behind us? Not by a long shot. What some market watchers may be forgetting is that the duration factor, or how long they are kept at this level is as important as the rate itself. Also, the full effect of these rate hikes has yet to work its way through the economy.

 

The interest rate story intersects with several other important stories and factors that will shape our future. For example, many people in the inflation camp see at least 5% inflation will stay with us for most of the next ten years. Taxation is another, direct or indirect, life is full of hidden taxes. Governments, banks, and businesses all benefit from taking advantage of us by shifting costs and then nibbling away at us. 

Also, we would be naive to discount soaring labor costs. several agreements with huge unions have resulted in raises in the 30% area. This jump makes it difficult to think the nearly 25 million government and public sector workers across America will not be soon banging on the drums for huge wage increases. then there is the issue of geo-political problems everywhere, but that is a subject for another time.

Even if the rate hiking cycle is coming to an end, the fact that if inflation does not remain contained, new issues will emerge. The glorious idea capital controls will bring about a glorious future should be viewed with suspicion. As the world reserve currency, the dollar still carries a lot of weight in this never-ending game. We can only hope that weight is not squandered and that more is done to correct the unsustainable economic path of piling on debt upon debt the world has taken.

 

 

(Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)